Month: March 2023

Attaining Your Money Milestones Feels Awesome!

I think it’s important for you to have money milestones, some kind of target that you want to achieve with your money. Maybe it’s getting the first $100 into your emergency fund. Maybe it’s paying off your debt or getting to positive net worth. Perhaps you want to ensure that your portfolio kicks off enough money to pay for your current standard of living. They can be things you want to accomplish in the next six weeks or they can be priorities that will take you years to fulfill. However long it takes you to attain your milestones should not dissuade you from pursuing them. Like they say, from the smallest little seed did the mighty oak grow. Start today.

Whatever your milestones are, it’s a good idea to pat yourself on the back once you’ve achieved them. After all, you worked hard to achieve a goal and attention should be paid. You should thank yourself for the effort and discipline it took for you to achieve your financial goals. If you hadn’t committed, then it’s pretty likely that you wouldn’t have met your money milestones.

Back when I was a kid, I bought myself a reference book about money called Personal Finance For Canadians by Kathleen H. Brown. This 552-page book was one of my very first personal finance books and it led me down the rabbit hole of financial planning. Next up – The Complete Idiot’s Guide to Getting Rich by Larry Waschka. This is one my very favourite money books. The latter had a section about the 5 levels of wealth. You attain Wealth Level Two when your portfolio’s returns matched your contributions. In other words, if you’re contributing $1000 to your portfolio every year, then WL2 starts when your portfolio generates an annual return of $1000.

As I was updating my spreadsheets*** this week, I realized that I’m now at Wealth Level Two. I’ve hit one of my money milestones. My portfolio’s return is more than my contribution. Hooray for me! It took me a blood long time to hit this stage, but I’m very proud of myself right now. To quote one of my favourite little people, “I did it!”

I’ve made money mistakes over the years – see here, here, and here. Due to my many money mistakes over the years, it’s taken me since 2011 to achieve this particular milestone. That’s 12 years! Had I been smarter or more insightful, I don’t think it would’ve taken me this long. I can’t bear to think about how much further along I would be if I’d started investing when I bought the book…last millennium! That said, I’m still pretty proud of myself. I took the initiative to get started and to commit to bi-weekly contributions to my non-registered investment account, no matter what. Whether the market was going up, going down, or going crazy, I stuck to investing a chunk of my paycheque every two weeks. As my salary went up, so did the investment amount. I continued to live below my means. Most importantly of all, I never pulled my money out of the market, even when we experience that gut-churning stock market plunge in 2020 and the more recent volatility of 2022.

Please do not think that I didn’t face temptations to spend my investment contributions on today’s wants instead of my long-term goals. I did, but I know myself. I knew that if I didn’t rely on automatic transfers, then I’d likely spend the money on stupidities. Instead, I put technology to work and lived on whatever was left. Automation is my friend. Once I had an automatic transfer is place, it would take a serious threat to my survival and/or livelihood to persuade me to halt the automatic contributions to my future. Concert tickets, travel, a newer vehicle – all of these could be paid for with whatever was leftover after my long-term goals were funded. The Fear of Missing Out and You Only Live Once philosophies did not guide my investing decisions.

When I first read those two reference books, I was a young adult who didn’t come from money. My parents worked hard, but they were not rich. They taught me how to save money in a savings account and how to buy Canada Savings Bonds. They invested in a few stocks so that I learned a little bit about the stock market and how to earn dividends. The rest of it mutual funds? Exchange-traded funds? Real estate investment trusts? Tax Free Savings Accounts? Canadian Deposit Insurance Corporation? Other investment vehicles? Real estate investing? My parents definitely lit the fuse when it came to investing for my future. However, it was up to me to learn about the other stuff on my own.

It took quite a long time, but so what? The time was going to pass anyway. Today, I’m seeing the results of my discipline. It’s paying off. I’m hitting my money milestones, and that makes me smile with happiness and joy. My life is good. I have everything I need and most of what I want. A few smart choices in my past has allowed me to create a good financial life for myself. I’m attaining my money milestones, and there’s a good chance that I’ll attain the rest of them too.

You can do this. First, identify your money milestones. Secondly, pick an amount of money to direct towards achieving them. Thirdly, set up an automatic transfer so that your money is whisked away before you get a chance to spend it on not-your-money-milestones. Fourth, never stop reading about money. Learn, learn, and learn some more. Fifth, congratulate yourself for starting your financial journal then do so again each time you attain your money milestones.

Will it be easy? Probably not. There’s an entire industry captained by the AdMan and his trusty sidekick, the Creditor, which exists solely to part you from your cash. Even without AdMan and Creditor, inflation is currently kicking everyone in the soft bits so income doesn’t go as far as it used to. Here’s a little tip from me to you. It’s never easy to save and invest. There’s always a reason to put it off.

Don’t let that stop you. If you can only start with $1, then start with $1. Work your way up from there. Get in the habit of saving and investing your money. Once it’s investing, leave it alone to compound. Save – invest – learn – repeat. Time will take care of the rest. Your first money milestone is to start.

*** By the by, I have to admit that I love spreadsheets. They’re rewarding, a visual reminder of how far I’ve come by investing consistently. One of my spreadsheets tracks all the dividend payments that I receive. As you know, I’m a big fan of dividend-paying exchange-traded funds. I’ve invested a good chunk of my portfolio in VDY and XDV. I have other dividend-payers as well, individual stocks mostly, but these two ETFs are the powerhouses of my portfolio.

Suddenly, they had no money.

When I watch movies, I like to think about the personal finances of the characters or the financial implications of the stories. Unlike sex and violence, movies aren’t explicit about most characters’ money situations. When bad guys beat up the good guys on instruction from someone else, haven’t you ever wondered how much the bad guys were paid to do so? Most bad guys in movies are killed or grievously injured. What kind of medical coverage do they have? Do they have life insurance for their dependents? Do they even have emergency funds to cover the bills while they’re unable to work?

Think about the characters who are dressed and coiffed impeccably from start to finish, without ever wearing the same outfit or accessory twice. Don’t you ever wonder how they can afford that while working in whatever job they have? The exception to this last question is Tony Stark. It’s clear right from the get-go that he’s a multi-billionaire. But what about the other Avengers? How do they afford their lives? Especially Bruce Banner! Does he own lots and lots of stock in clothing companies? What kind of premiums does he pay for liability insurance? Captain America was encased in ice back in 1945. Had he socked away some money before his time in the army? Did he live on its compound growth once he was thawed and back among the living?

Before I get too far off topic, let me get back to what I want to talk about in this post. The ending of Don’t Look Up has stuck with me for a very long time because it was about wealthy people, a group that evokes my latent desire to be an amateur sociologist. As I watched the elderly naked characters emerge from their spaceship, I was struck by the futility of their departure from Earth.

None of them were wealthy anymore. How could they be? They had no money… which struck me as deeply ironic since having more money than anyone else in the world had allowed them to be on the spaceship that took them to the new planet. By the same token, they didn’t exactly need money either. After all, they no longer had any bills or expenses to pay. However, people wealthy enough to book a seat on a spaceship generally aren’t concerned about which streaming service should be cut from their budget in order to make ends meet.

It was quite clear from the movie’s ending that only the very wealthiest of humans had gained passage on the spaceship, and only because they could afford to buy their way on board. On Earth, right up until hours before the comet destroyed the planet, they had been the people with more money than anyone else. They had such disproportionate access to wealth that they could pay to leave the planet when they felt it was time to go.

As those formerly-rich folks emerged from the spaceship and took their first steps on the new planet, I said to myself: “What was the point of leaving? It’s not like they went to a better place. How are they going to adapt to the fact that they no longer have money?” ***

My point with this post is that the movie made me ponder whether someone can be rich if there are no poor people around. If everyone is on an equal footing financially, then can anyone be considered wealthy?

At the end of the movie, all of those naked people were in the exact same financial position as everyone else around them. None of them enjoyed the benefits of intergenerational wealth, networking, or opportunity based on lineage. Every single one of those people had lost all of the privileges associated with being one of Earth’s Financial Elites.

The so-called survivors at the end of Don’t Look Up no longer had access to all of the status symbols associated with uber-wealth on Earth:

  • Servants? It was unlikely that any one of them would deign to serve someone else as they had been served in their former lives on Earth.
  • Multiple homes? Unlikely… they’d all just gotten off a spaceship and were walking around an utterly alien terrain.
  • Family businesses? Also very unlikely. Their families had been abandoned back on Earth and killed by the comet, just like the customers who had patronized those businesses, just like the employees who had worked in those businesses.
  • Stock portfolios? Art collections? Expensive jewelry? Nope – nope – nope. The new planet wasn’t tied into the banking system and the stock markets on Earth, so no one person had any ability to access whatever paper assets they had owned. Also, every bank and stock market on the planet had been destroyed by the comet. Every monetary system known to man had been annihilated.

Literally and figuratively, their wealth no longer existed. Would that itsy-bitsy, teeny-tiny realization blow their minds later? The movie ended before I got an answer to my question. In my consideration of what went through their minds, I can only come to the conclusion that the level of cognitive dissonance that would have been experienced by those formerly-wealthy folks would have been breathtaking!

Now, I know that movie was about humanity’s refusal to face the inevitable until it was too late to make any changes. Whether it was a plea to stop our relentless destruction of the environment or a plea to pay attention to the asinine level of incompetence happening in government, the fact remains that the last few minutes of the movie were about those who had left Earth before the comet hit. I’ll never know if the director intended it or not, but my take-away from the end of Don’t Look Up was that the formerly-wealthy people’s departure from Earth had only delayed the final demise of humanity; it didn’t prevent it.

Think about it. Humanity was still going to be extinct for a variety of reasons. Firstly, none of those “survivors” were capable of reproducing themselves, so no new humans at all, ever. Secondly, I harbor great doubt that any of them could feed or shelter themselves for very long once they had exhausted their provisions, if any. Thirdly, the naked, elderly humans seemed utterly un-prepared to face the aggressive, people-munching wildlife on their new planet.

I know it was just a movie. However, that doesn’t stop me from imagining their shock at discovering that having all the money in the world wouldn’t prevent them from dying too. The so-called survivors landed on an unfamiliar planet without any information about it other than that they could breathe the air. For all intents and purposes, they were in nearly the same position as the first humans who had walked the Earth. And I say “nearly” because those early humans had the benefit of their fertility. Whatever lessons one generation learned while struggling to survive were passed down to children. In other words, early humans had a future! The survivors who emerged onto the new planet didn’t even have that. From what I could see in the movie, those survivors were all elderly and well-past their baby-producing years.

Can you imagine how their minds must have been blown?

Without the yardstick of money and without possibility of leaving a legacy, what had they really accomplished by leaving the planet? They got to ride in spaceship before dying on alien soil? Yet, with the destruction of Earth, there was really and truly no one left to mark this event. Whether or not dying off-planet was an accomplishment, their knowledge and record of doing so would die with them.

To my mind, they would have had to find a way to deal with the fact that they were no better off than the people who had died on Earth.

Also, I had to wonder if they had any useful survival skills. Astonishingly enough, their talent for creating wealth was of absolutely no use to them in their new location. Remember, they had been financial Titans on Earth. They had earned bucket and buckets and buckets of money in their former lives. On a new planet and without any kind of mentorship, would any of them have been able to survive the way the earliest humans had? How much food had been packed into the spaceship? Once it ran out, would any of them be to hunt or grow their own food? Would they have splintered off into even smaller groups or would they have found a way to work together? How would they have preserved their sanity in the face of no future???

The way I see it, money is a bit of a scorecard. In a capitalist society like ours, having more money means you’re winning. Money means access to food, shelter, healthcare, transportation, communication, education, and a good deal more stuff. However, there comes a point where a person no longer really has to worry that he or she won’t have enough. These are the people with net worths in the 9-figure range and above. These are the people who got off the spaceship at the end of Don’t Look Up. However, having the best financial scorecard on Earth is less-than-trivial if Earth is the only place that particular scorecard is recognized.

What happened to the so-called survivors’ perceived self-worth once they realized that they were no longer winning? That the game had been changed and their net worth was the exactly same as everyone else’s? That their previous privilege and status was literally meaningless on the new planet?

How did they handle the knowledge that, suddenly, they had no money?

*** And I’m not trying to engender sympathy for the uber-wealthy. That way lies pitchforks and angry mobs.

Do Your Parents Have a Pension?

Most of the time, I talk to you as though you’re the only person you have to support with your income. The reality is that many people support their parents to some degree. If your parents are still working, then you should find out if your parents have a pension. Will it be enough to support them through the final chapter of their lives? Or will they be looking at you to supplement or support them until the end?

I’m not an expert on family dynamics. All I know for sure is that every family is different, and each family has its own set of rules. My blog is about my views on personal finance. And one of my views is that you should ask yourself the following question: do your parents have a pension?

Whatever the answer, the next question to ask yourself is: Am I going to give them financial help once they stop working?

You need not share your answer with the class, but you should definitely keep it in mind as you do your own financial planning.

For my part, my father is deceased. My mom benefits from a spousal pension, her own pension, and various government supports. She’s been retired for over a decade now. Thankfully, she’s in her own home and she can pay her own bills. That said… I still watch for signs that she might be struggling on the financial end. I have to face the facts. Her pension payments are not keeping up with inflation. Even though inflation has been low until 2022, what few increases she’s had over the past 10+ years have been effectively wiped out by the roaring inflation we’ve seen in the past 12 months. Prices are not going to drop back to where they were a few years ago. This means that my mom’s fixed income is going to continue to buy her less and less as time goes on.

In my case, my remaining parent has a steady, reliable income that currently covers all of her expenses. And so far, I haven’t had to give her financial help during her retirement. During the time that she’s been retired, I’ve been saving and investing and building my non-employment cash flow. I really hope that I will be able to continue doing so until my own retirement, but… what if my mom needs financial help?

Like I said, she’s currently in her own home. That’s great! If she has to move into assisted care, her home can be sold to pay for it. That’s also great! If she lives long enough to exhaust the sale proceeds, then what? Am I going to move her into my home and hire caregivers? Where will the funds come from to pay for that kind of care? And how much money will be needed?

These are some of the things that I think about when planning for my own retirement.

Do your parents have a pension?

In my opinion, you should know the answer to this question. It should be factored in when you’re setting your own priorities. Whether you get along with your parents or not, you should have some idea of how much you’re willing to give to your parents if and when the time comes.

No One Talks About This!

It’s an unfortunate reality that this aspect of personal finance is rarely, if ever, discussed in the mainstream. Even in the personal finance sphere, I can only think of a few bloggers who ever discuss it openly. Journey to Launch and Rich&Regular are two who readily come to mind. The first time I heard the term “the Black Tax“, my curiosity was piqued. After learning more about it, I’m convinced that many families face this burden regardless of race. I also believe that the issue of pensionless parents is routinely ignored by the broader personal finance media.

There are countless stories about wealthy parents supplementing the salaries and down payments of adult children:

On the other side, there’s a dearth of reporting about adult children having to support their pensionless and/or low-income parents. There’s a deafening silence about how this type of financial obligation limits the opportunities for the next generation to build wealth and create financial security.

To be clear, I’m not telling anyone to abandon their parent(s) in order to be financially comfortable.

Unless the relationship is bad, (however you define that term), it’s assumed that children will do what what they can to alleviate a parent’s suffering. This is normal. It’s a sign of love. The other reality is that we live in a society where having money means having options and opportunities. If your money is spent today to care for your parents, then that money is not available for saving and investing. You may find yourself in the same situation as your parents in 20/30/40 years’ time because you chose not to invest for your own senior years.

My purpose with this blog post is to put these facts on the table for consideration. I’m simply urging you to consciously recognize that this is the choice that is being made. Ultimately, you’re the one who gets to make the choice, no matter how easy or difficult that choice may be. Do you want to spend the money today? Or do you want to invest it for tomorrow?

And if you want to do both, then what are your options for doing so?

  • You could go back to living with you parent(s). This isn’t feasible for everyone. However, it will work for some. Think about it.
  • You could get a second source of income and direct all of that income into your investments. Keep your expenses the same as they are now. Let that second income fund your future.
  • Help your parents downsize into a home that better fits their empty-nest status.

When it comes to making plans for your future, the first step is figuring out your priorities. For some of you, financially supporting your parents is or will be one of your highest priorities. Maybe you’re already helping your parents by sending them a few hundred or a few thousand dollars each month. If so, you should be planning on how to sustain those payments as you also try to save for your own future. It’s absolutely necessary that you understand how the decisions you make today will impact your ability to save for tomorrow.

Doing Your Best Is the Best You Can Do

This year, I will have been engaged in DIY-investing for 3 full decades. Wow! It sounds like a long time, doesn’t it? Believe me when I say it went by quicker than two shakes of a lamb’s tail.

Have I made mistakes? Plenty! Did I have too much hubris along the way? Probably. Could I have made better choices if I’d had more information earlier? Absolutely.

Lesson learned – downturns are a fantastic time to be investing in the stock market.

Looking back, I see now that I could’ve made better choices. During the 2008 financial crisis, I stopped contributing to my investment accounts for 6 months. The stock market was extremely volatile, and the value of my investments was decreasing on a weekly basis. I hit “pause” on my bi-weekly contributions to my non-registered investment account. Doing so was a huge mistake!!! This was the best time to be investing my money since the stock market was on sale.

As the pandemic took hold in 2020, my investments plunged. I stopped myself from checking my balances every day once my losses hit a quarter million. To this day, I still have no idea how low my investment portfolio sank because it was too stressful for me check the number. That said, I never stopped investing. Thankfully, my employment was secure so I continued to divert money from every paycheque to my investment account.

And I stuck to my investment plan in 2022, despite the market dropping and dropping and dropping some more. Last year was definitely not an easy ride in the stock market. All the gains I’d earned in 2021 were essentially erased!!! No matter – I did not repeat the mistake of Younger Blue Lobster. I did not “hit pause” on investing this time around. This is what I’ve learned: regardless of whether the market is up or down, investing in well-diversified, equity based ETFs for long-term growth is a good thing, .

Lesson learned – start today. Procrastination simply means that your money isn’t working for you.

Procrastination hurt my financial goals. After paying off my mortgage, I waited roughly 5 years before I started to invest in my non-registered investment account. I’d been very diligent about putting money away in my RRSP every single year, so I can pat myself on the back for that choice. However, I spent too many years thinking about starting an investment portfolio instead of just starting it.

In other words, I knew what to do… but I just didn’t do it.

Please do not make this mistake. Open the account today. Set up the automatic transfer today. The sooner your money is invested, the sooner it will start producing returns for you. Believe me when I say that 30 years goes by way faster than you think it will. You don’t want Future You to live with the regret that you didn’t start as soon as possible.

Lesson learned – invest in equities while you’re young.

When I started my non-registered investment account, I chose to invest in dividend-paying mutual funds. Eventually, I switched to dividend-paying exchange traded funds because ETFs are cheaper than mutual funds. Even today, it makes no sense to me to pay more money for essentially the same product.

I was quite proud of myself! Turns out, I should have been investing in equity-based ETFs like VCN or VXC or VUN. (Yes – I’m a fan of Vanguard Canada. No – I’m not being paid for mentioning them in this post.) Investing in equities means investing for long-term growth. And long-term means 10 years or longer. Hindsight is 20/20 as my father used to say. The stock market experienced very good returns 2009 and 2020. Had I invested for growth instead of for dividend income, I would be so much closer to my financial goals by now.

In the interests of transparency, I have since adjusted my investment plan. Since October 2020, I’ve been investing in VXC. I didn’t sell my dividend ETFs – they throw off a nice annual stream of income. I allow my dividends to compound via the magic of the DRIP, aka: a dividend re-investment plan. New money goes into my equity-based ETF. God-willing, I have atleast another 10+ years to live so I’m expecting to see good returns from my equity investment.

Lesson learned – get help as soon as you can afford it.

Remember when I said that I started my investing journey 30 years ago?

Well, I didn’t see a financial planner until 2020. First of all, I wanted to see someone who wasn’t paid by the investment industry. As far as I’m concerned, there’s a conflict of interest if the person giving me advice is paid by the people whose products are being sold to me. That person’s paycheque is dependent on selling products, and is not dependent on giving me the best advice for my particular circumstances. I wanted a someone who adhered to the fee-for-service model of delivering financial planning advice. Others may feel differently, and that’s their prerogative. I would only be satisfied if I could find someone who I knew was working for me alone.

In 2019, I obtained the name of an independent financial planner. His time and advice cost me a four-figure amount, so not exactly cheap but still a very good use of my hard-earned money. The financial planner did a full review of my finances and investments. He prepared a detailed binder filled with information and projections of how long my money would last. He told me that I could retire 2-3 years earlier than I’d planned. And he didn’t try to sell me anything. In short, he didn’t have any conflict of interest because he was working for me – not for an investment company.

Should I have hired a financial planner earlier in my investing journey? Yes – probably. If I’d had the same information at the 10-year or 15-year point in my journey, then I could have course-corrected earlier.

Had I met with him at the start of my investing journey, I probably would’ve gone off-course at some point. Remember that hubris I was talking about? Well, I had it in spades! I’ve still got quite a bit but I’ve also gained the wisdom to know that there’s still a vast amount of knowledge for me to acquire. Independent financial advice at the very start of my journey might have been wasted.

Lesson learned – I need not make every mistake myself.

Mistakes are learning opportunities. No one likes to make them. For many of use, mistakes have meant that we’ve been chastised, mocked, or otherwise bullied by others for making them. As a result, we’ve learned to shy away from these teachable moments.

The possibility of making a money mistake paralyzes a lot people. As a result, they don’t ever start saving or investing. It looks like procrastination, but it’s really just good, old eternal fear. Here’s a little tip from me to you. Not every mistake has to be mine in order for me to learn from it. I’m perfectly capable of learning from other people’s mistakes… and so are you.

Look around and ask yourself if you want to make the same mistakes that you see other people making. If the answer is “No”, then make the changes you need to make so you can do better. No one can guarantee that making those changes will be easy. As a matter of fact, I’m quite certain that it will be somewhat challenging depending on how much change you decide to make. Do it in bite-size chunks. Break the task down into manageable pieces, and do one task every time you get paid or on whatever schedule you choose.

The level of difficulty associated with change you want to make should never be a reason to deter you from making it. Do not continue to make mistakes simply because it’s the easier path. That route leads to disappointment and regret. You have one life so prioritize what you want out of it. Your dreams are important to you, so you should be doing what needs to be done in order to bring them to life.